An amended complaint has been filed in the U.S. District Court of the District of Columbia asserting the Internal Revenue Service (IRS) devised rules effectively denying refunds to and shortchanging American taxpayers, entitled to refunds, by billions of dollars. The amended class action lawsuit, Sloan et al v. United States of America acting by and through the IRS, was originally filed in March to end the 3 percent excise tax on long distance phone calls.

The amended lawsuit asserts that the tax refund and credit rules, developed without public input and released May 25, will harm the interests of all consumers of phone services and leave millions with nothing. The Sloan plaintiffs, including individual and small business taxpayers, call for an accounting and fair, efficient and accurate restitution, with interest, to all taxpayers of the tens of billions of dollars unlawfully exacted before the Government acknowledged that the tax was illegal.

“Unfortunately, after years of illegally ‘nickel and diming’ Americans on their phone bills, the IRS would now shortchange everyone and arbitrarily impose huge burdens on small businesses and many low income individuals, especially senior citizens,” Jonathon Cuneo of Cuneo Gilbert & LaDuca, LLP in Washington, D.C. and co-lead attorney for the plaintiffs, said in a prepared statement. “Behind closed doors, the IRS by fiat made demographic choices in designing the tax refund rules that will effectively deny the less affluent the ability to recover their own money.”

The IRS rules governing the excise tax refund or credit published May 25 as Notice 2006-50, were devised without the public review and input required by the Federal Administrative Procedure Act, the lawsuit asserts. The IRS would allow for a refund/credit of taxes paid during only three of the eight years the excise tax was illegally exacted. In addition, by requiring all taxpayers to file income tax forms to receive the refund/credit they are entitled to, the rules effectively exclude millions of non-filers, including low income consumers of phone services and senior citizens whose level of earnings fall below the minimum filing requirement. Finally, unlike individual taxpayers who may opt to accept a flat “safe harbor” refund/credit dollar amount, which has yet to be determined by the IRS, small businesses, in order to receive any refund, are required to compile years of monthly phone bills and calculate the actual amount of taxes they illegally paid.

“For no stated reason and with no legal authority to do so, the IRS unilaterally acted to sharply cut the payback of taxpayers’ own money,” Cuneo continued. “It is simply unfair to exclude millions of non-filers from the payback and force small ‘mom and pop’ businesses to expend hours and hours collecting and analyzing over years of records in order to receive their own money.”

The 3 percent federal excise tax is levied upon toll charges for long distance service as defined in 1965 and should have applied only where the charge for a toll call varied on the basis of both the distance and elapsed time for each individual call. Most long-distance carriers, however, now charge a flat per minute rate for calls to anywhere in the nation.

“As technology changed and more telephone services were billed at flat rates, the government never went back to Congress to seek a 3 percent excise tax on long distance service based on elapsed time only,” Robert Cynkar of Egan, Fitzpatrick, Malsch & Cynaker, PLLC, a Deputy Assistant Attorney General of the United States during the Reagan Administration and another attorney representing the plaintiffs, explained in a prepared statement. “Instead, in a clear violation of the Constitution, the government simply imposed the tax, which was small and went unnoticed by most individuals. Now, by promulgating unfair refund rules without public input, the government has arrogantly violated federal law yet again. Conservatives should be out-raged.”

AccountingWEB contacted the IRS for comment on the amended lawsuit, however, no formal response was available at press time.